Capital Markets Review
Spring 2017

Economic Outlook

Speaks Softly, But Keeps Growing

The recent economic story has been one of solid performance beating glum expectations.

Fourth-quarter growth of 2.1% was near the central tendency of several years. And while the third quarter was a bit stronger, quarters before that weren’t, and a slowdown is broadly forecast for the first quarter of 2017 just ended. And round ‘n’ round it goes.

Equity Portfolios

Continued Optimism, But Beware Of Mood Shifts

The post-election exuberance in the broad equity market continued in early 2017, though small-cap stocks came up, well, short.

Surveys and market sentiment remain strong on hope for an improved regulatory environment, additional government stimulus (from infrastructure and/or tax cuts) leading to more jobs and higher wages, and, for some, a focus on “America First” that translates into reduced immigration, improved trade outcomes, more manufacturing and coal jobs, and other expected gains.

Fixed Income Portfolios

Monetary Policy Normalization In Abnormal Times

U.S. inflation is approaching the Fed’s target rate of 2%. The American economy is viewed as “…at or near maximum employment.” In anticipation of incoming wage pressure and inflation risk, the central bank has begun a monetary “normalization” process by gradually raising the so-called Fed Funds rate and began discussions on how to shrink its balance sheet, now engorged with treasury and mortgage-backed bonds.